Funding which is deployed to support an acquisition or series of acquisitions, which can be in the form of debt or equity.
A general term to describe non-traditional types of asset class, including private equity.
Buy and build
A process by which a company achieves growth in size and scale – in products/services, customers or geographies – through a programme of multiple acquisitions. This is common in fragmented industry sectors where there is an opportunity to consolidate.
Any investment where a company or subsidiary is acquired from its shareholders. See also ‘management buyout’ and ‘secondary buyout’.
The difference between an asset’s purchase and sale price, where the sale price is higher. Capital gains are taxed at a lower rate than other forms of income.
A venture capital or private equity investor which is owned by a larger financial institution, such as a bank.
DD for short, this is a process undertaken by potential investors – often using third parties – to analyse different areas and functions of a business and its marketplace prior to any transaction. Areas of DD include financial, commercial, insurance, IT, legal and management. In some transactions, vendor due diligence is prepared as part of the process and provided to potential investors.
Earnings before Interest, Taxes, Depreciation and Amortisation. This is a measure of underlying profitability – used frequently by private equity – which shows the true level of cash generation within a business after these elements are removed. Different to EBIT and PTP.
An ownership interest in a company, usually in shares or share options.
A process by which an owner or owners of a business convert some of their shareholding into cash by securing third party investment.
A plan which sets out how the investor and management team will sell their shareholdings in order to generate maximum return. A strategy can be driven by multiple factors, from the investment climate to industry trends to the types of likely buyers that exist for a business. Typical exit strategies involve ‘trade sales’, ‘secondary buy-outs’ and ‘initial public offerings’.
Also referred to as development capital, this refers to a minority investment where the capital is used to fund the expansion of an established business. This can include acquisitions, increased working capital, the purchase of assets or the development of new products and services. Growth capital can also be used to refinance bank debt.
IRR or internal rate of return
A typical measurement used by private equity firms to compare the profitability of its investments.
Initial Public Offering (IPO)
The sale of shares in a company to the public for the first time through a stock market, such as the London Stock Exchange or AIM. IPOs provide an opportunity for existing investors to realise the value of their investment.
Organisations that invest professionally, such as insurance companies, pension funds, investment companies and hedge funds.
Leveraged buyout (LBO)
An acquisition which uses both equity and debt funding, with the company using cash flow to repay the debt.
A loan note is an interest-bearing subordinated debt obligation that ranks behind the senior debt in your structure but ahead of the ordinary equity.
Shorthand for the process of mergers and acquisitions.
Management buyout (MBO)
An investment where the management team of a company or subsidiary leads its acquisition, often with a private equity firm investing alongside in return for a shareholding. This is typically perceived to be a lower risk investment given the team with the knowledge and expertise remains with the business. This compares to management buy-ins – where a new management team invests – and institutional buyouts – where an institution invests and appoints a management team.
The total value of all outstanding shares in a company. This is calculated as the number of shares multiplied by current price per share.
A transaction which sees two or more companies combine, often to achieve increased market presence and efficiencies within the enlarged business.
Mezzanine is a form of finance which can be structured either as subordinated debt or preferred equity. It is often seen as a more expensive form of finance than traditional secured or senior debt as a result of being subordinated in a company’s capital structure, and therefore less likely to be repaid in the event of a default.
Often referred to as investment multiple, this is a valuation metric which divides a company’s enterprise value by its ‘EBITDA’. Different businesses will be acquired and sold on a multiple of their earnings, with higher multiples being an indicator of asset quality.
A non-executive can be a director (NED or NXD) or chairman (NEC or NXC) of a company who is a member of the board but who is neither an employee nor part of the executive management team. Typically these are experienced individuals who add strategic and operational expertise to an existing management team.
This refers to the valuation of a company immediately after an investment or fundraising.
This refers to the valuation of a company prior to an investment or fundraising. Different metrics are used to determine this value, such as discounted P/E ratios and future cash flow.
A type of investment – or asset class – which includes shareholdings in companies that are privately owned and not publicly traded on a stock market.
This refers to the reorganisation of a company’s capital structure, being the proportion of equity to debt.
Secondary buyout (SBO)
This refers to an investment in an existing private equity backed company, which can enable the incumbent investor to realise the value of their investment.
A term sheet is a nonbinding agreement which sets forth the basic terms and conditions under which an investment will be made. It serves as a template to develop more detailed legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up.
When the shareholdings in a company are sold to another trading company which is not an investment firm.
A type of equity which typically refers to capital deployed in start-up or early-stage businesses, as opposed to private equity which is typically associated with more established companies.